SAS Standards Update

Overview

The American Institute of Certified Public Accountants (AICPA)’s Auditing Standards Board (ASB) has issued several new Statements on Auditing Standards: SAS 134, 135, 136 and 137 to improve transparency and communication in audit reports.

●SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, now places the auditor’s opinion at the front of the independent auditor’s report to enhance clarity regarding the responsibilities of both the entity’s management and the independent auditors.
●SAS 135 Omnibus Statement on Auditing Standards 2019 was issued to more closely align ASB guidance with the PCAOB’s (Public Company Accounting Oversight Board) standards by primarily amending AU-C Section 206, Communications With Those Charged With Governance, AU-C Section 550, Related Parties, and AU-C Section 240, Consideration of Fraud in a Financial Statement Audit, in AICPA Professional Standards.
●SAS 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA has been issued to assist in the transparency and usefulness of auditors’ reports on employee benefit plans.
●Lastly, the ASB has issued SAS 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports. SAS 137 is an additional standard issued to enhance transparency in reporting related to the auditor’s responsibilities for non-financial statement information included in annual reports and to reduce diversity in practice.

SAS 134

What Has Changed?

SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, AUC-C Section 701, replaces Sections 700, 705, and 706. The following key changes have been made:

●The Opinion section in an independent auditor’s report is now required to be presented first, followed by the Basis for Opinion section.
●The Basis for Opinion section is now required to follow the opinion section. This section is to include an auditor’s statement of independence along with meeting the auditor’s other ethical responsibilities.
●Enhanced auditor reporting relating to going concern, including a description of the respective responsibilities of management when required by the applicable financial reporting framework, and the auditor for going concern. (Going concern assumes that an organization will remain in business for the foreseeable future).
●Amends AU-C Section 570, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, to include a separate section in the auditor’s report when there is substantial doubt about an organization’s ability to continue as a going concern.
●Expanded description of the auditor’s responsibilities relating to professional judgment and professional skepticism, and the auditor’s communications with those charged with governance.
●Amends AU-C Section 260, The Auditor’s Communication With Those Charged With Governance which requires the auditor to communicate with those charged with governance about significant risks they have identified.
●Key Audit Matters Section 701 addresses the auditor’s judgement about what key audit matters to communicate in the auditor’s report and the form and content of such communication. This Key Audit Matters paragraph will be added to the auditor’s report only when you have engaged your auditor to report on such.
●Modifications to the Opinion Section 705 of SAS No. 134 which aligns the form and content of the auditor’s report with the changes in section 700 of SAS No. 134 when the auditor concludes that a clean auditor’s opinion in accordance with section 700 is not appropriate (qualified, adverse, or disclaimer of opinion).
●Section 706 clarifies the relationship between Emphasis-of-Matter paragraphs and the communication of key audit matters.
●Amends various AU-C sections to focus the auditor’s attention on disclosures throughout the audit process, including new requirements regarding assessing and responding to audit risks, along with including enhanced application material in these and several other AU-C sections to assist auditors in addressing the practical challenges arising from the evolving nature of disclosures.

How Should Your Organization Prepare?

●SAS 134 is effective for audits of financial statements for periods ending on or after December 15, 2020, with early implementation not permitted. (Calendar year ends 12/31/20 or Fiscal year ends 6/30/21)
●The implementation of this standard is not intended to be time consuming.
●Determine through discussion with your Audit Committee and auditors whether you would like to engage the firm to add the key audit matters paragraph.

SAS 135

What Has Changed?

SAS 135, Omnibus Statement on Auditing Standards 2019, has been designed to align ASB guidance more closely with the PCAOB. The following sections have been amended:

●Amendments to AU-C Section 260, the Auditor’s Communication with Those Charged with Governance
●Amendments to AU-C Section 550, Related Parties
●Amendments to AU-C Section 240, Consideration of Fraud in a Financial Statement Audit

How Should Your Organization Prepare?

●SAS 135 is effective for audits of financial statements for periods ending on or after December 15, 2020, with early implementation not permitted. (Calendar year ends 12/31/20 or Fiscal year ends 6/30/21)
●Be sure to have requested key financial documents available for your auditor’s review. Your auditor may have additional questions and documents to request with the implementation of this standard.

SAS 136

What Has Changed?

●SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA has been issued to assist in the transparency and usefulness of auditors’ reports on employee benefit plans including changing the form and content of the auditor’s report.

Below are highlights of the new standard:

●Audits previously referred to as “limited scope audits” will now be referred to as “ERISA Section 103(a)(3)(c) Audits."
●There are new engagement acceptance requirements that must be included in the engagement letter, including the responsibility of management for maintaining a current plan instrument, administering the plan and providing the auditor a draft IRS Form 5500 prior to the date of the auditor’s report.
●The Opinion section in an independent auditor’s report is now required to be presented first, followed by the Basis for Opinion section.
●The Basis for Opinion section is now required to follow the opinion section. This section is to include an auditor’s statement of independence along with meeting the auditor’s other ethical responsibilities.
●The auditor must have certain written management representations regarding management’s responsibilities for administering the plan.
●The auditor will be required to make certain communications with Management and those Charged with Governance. These communications will include reportable findings and will include a description of the reportable finding, sufficient information to enable those Charged with Governance/Management to understand the context of the communication, and an explanation of the potential effect of the reportable findings on the financial statements or to the plan.

How Should Your Organization Prepare?

●SAS 136 is effective for audits of ERISA Plan financial statements for periods ending on or after December 15, 2020, with early implementation not permitted. (Calendar year ends 12/31/20 or Fiscal year ends 6/30/21)
●For organizations having an ERISA Section 103(a)(3)(c) Audit, consistent with current practice, you will be required to provide certification of investment information prepared and certified by a qualified institution so that it may be compared to information in the ERISA plan financial statements and ERISA required supplemental schedules.
●Consistent with current practice, management will need to provide the auditor with a substantially completed draft IRS Form 5500 so that the auditor can review the draft for material inconsistencies with the audited ERISA plan financial statements. The auditor will then determine if either the draft 5500 or the financial statements require revision.

SAS 137

What Has Changed?

SAS 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, is an additional standard issued to enhance transparency in reporting related to the auditor’s responsibilities for non-financial statement information included in annual reports and to reduce diversity in practice. SAS 137 clarifies the scope of documents that are subject to auditor procedures. Under this new Standard, your auditor will discuss with management to determine, and obtain written acknowledgement, as to which document(s) comprise an annual report as defined within the SAS and are therefore subject to audit procedures.

How Should Your Organization Prepare?

● SAS 137 is effective for audits of financial statements for periods ending on or after December 15, 2020, with early implementation not permitted. (Calendar year ends 12/31/20 or Fiscal year ends 6/30/21)
●Be sure to have on-hand a template/structure of your annual report available for your auditor so they can determine if there are aspects of the report that are subject to auditor procedures.
●Discuss with the Board what information is included in your annual report that would be subject to these procedures. Ensure that this is encompassed in your engagement letter.

Note these summaries are not meant to substitute for reading the new standards in their entirety:
SAS 134
SAS 135
SAS 136
SAS 137